Talk of North Korean Collapse Rekindled By Currency Reform Fallout

For the first time in years, international experts say North Korea's isolated government is increasingly frail, and potentially unstable. Part of the reason, they say, is Pyongyang's attempt at currency reform last year.

Flash back to North Korea, early 1995. The Soviet Union and its eastern bloc allies were gone, along with the economic aid that flowed from them. Kim Il Sung, the leader North Koreans worship like a god, had died the year before. And the country was entering a severe famine that would kill an estimated million people.

Predictions abounded that North Korea would collapse. But it persevered, and by 2005 predictions of a North Korean collapse were dismissed and even ridiculed.

Now, however, in 2010, that is changing, as Mansfield Foundation Executive Director Gordon Flake said recently.

"I think there's some increasing views in Seoul that after 20 years of wrongly predicting the demise of North Korea, there's something going on in Pyongyang," said Gordon Flake. "There are a growing number of people in South Korea who say that we're getting close to the end game here."

Among them are Andrei Lankov, a scholar at Seoul's Kookmin University, who is quite blunt about the prospects of a North Korean collapse.

"It's a very likely probability," said Andrei Lankov. "And personally, if you ask me, I don't believe there is going to be a peaceful, gradual end of the North Korean regime. It will be dramatic, and probably violent."

Regional experts say North Korea's own actions helped rekindle talk of a collapse, especially the surprise currency reform it announced last November. Economists say the move wiped out hard-won savings and strangled small markets literally overnight.

Scott Snyder, director of the Center for U.S. - Korea Policy, calls the currency reform a "fiasco" with serious political consequences.

"The currency revaluation has shaken the foundation, as North Korea continues to be penetrated by the forces of globalization," said Scott Snyder.

The currency misstep play into what some scholars describe as a "perfect storm" of factors that could shatter the fragile stability North Korea has enjoyed for decades.

The primary factor is Pyongyang's apparent attempt to groom North Korean leader Kim Jong Il's youngest son, Kim Jong Un, to take his place. The elder Mr. Kim apparently suffered a stroke about two years ago. As a result, North Korea analysts say, there is a sense of urgency in Pyongyang about the succession process.

But Seoul National University Professor Kim Byung-yeon says efforts to hand over power could easily fail because of internal power struggles made worse by the currency reform.

He says there are now two kinds of people within North Korea's elite, those who benefit from the market, and those who benefit from restraining the market. The tension between those two groups, he says, may well lead to a North Korean "meltdown."

Another factor loosening Pyongyang's grip on power is the weakening of its ability to control information, as more and more North Koreans are able to obtain cell phones, radios, and foreign DVDs. Kim Young-soo, a North Korea scholar at Seoul's Sogang University, says the currency reforms only succeeded in heightening North Koreans' hunger for information.

He says the shock of the currency reform jolted North Koreans out of their willingness to believe the government. So, they have taken it into their own hands to seek information they need for survival from outside sources. The belief that North Korea is a paradise, he says, is crumbling, and that will lead directly to collapse.

Marcus Noland, of the Peterson Institute for International Economics, says for once, North Korea is unable to use its old tactic of blaming the United States for its problems.

"The confiscatory currency reform was so obviously a self-inflicted disaster, that it is hard for the regime to explain this away," said Marcus Noland. "I think it's going to be very hard for the regime to repair the damage that it's done."

Even in China, North Korea's historical lifeline of food and fuel, there is talk of a possible collapse. At least one Chinese expert on North Korea has warned that Beijing may not bail out its neighbor.

North Korea's list of worries may grow longer if, as many regional security experts expect, evidence emerges linking it to the sinking of a South Korean navy ship last month. South Korea has warned that if a link is proved, it will seek a response through the United Nations Security Council, possibly increasing the North's economic isolation.